What is a Part 36 offer?
A Part 36 offer is a formal offer which can be used to settle all or part of a legal dispute, but it is not an admission of liability. The rules surrounding Part 36 offers are contained within the Civil Procedure Rules, and the aim is to encourage parties to try and settle their disputes. A party must consider any offers carefully as failure to accept a realistic offer may mean that you are at risk of being penalised in costs and interest.
A Part 36 offer can be a useful tool in the negotiation and settlement of a party’s claim and can put pressure on the other party to settle a case. A Part 36 offer can also give the party making the offer some protection on costs. Therefore, careful consideration should be given before withdrawing a Part 36 offer as there are consequences of taking this step.
A Part 36 offer must remain open for at least a period of 21 days which is known as “the Relevant Period”.
Acceptance of a Part 36 offer
Acceptance of a Part 36 offer must be in writing. A Part 36 offer can be accepted at any time before it is withdrawn; however, different cost consequences will apply depending on whether the offer is accepted inside or outside of the Relevant Period and permission of the Court may be required in certain circumstances.
If a party accepts an offer within the Relevant Period, they will have to pay the other party’s legal costs on the standard basis up to the date of service of the written notice accepting the offer. The standard basis means that should there be any doubt in respect of the costs being claimed and whether they were reasonably incurred or reasonable and proportionate, this will be resolved in favour of the party paying the costs.
If a party accepts an offer outside of the relevant period, the parties may agree to liability for costs, but if not, it will be left to the Court. The usual order is for the party accepting the offer outside of the Relevant Period to pay the other party’s costs.
Rejection of a Part 36 offer
If a party does not wish to accept a Part 36 offer, this does not have to be rejected in writing. The offer will remain open for acceptance unless it is withdrawn or amended by the party making the offer.
A party can make a counter-offer, and this will also not amount to a rejection of the Part 36 offer on the table.
Withdrawal of a Part 36 offer
A Part 36 offer can only be withdrawn or amended during the Relevant Period with the permission of the Court. Once the Relevant Period has expired, a Part 36 offer can be withdrawn or amended without permission of the Court by the party making the offer serving a written notice. If the offer is not withdrawn, it will remain open for acceptance, even if the other party has previously rejected it.
If a Part 36 offer is not withdrawn and the party making the offer obtains a judgment that is equal to or more advantageous than the offer, then the Court, unless it considers it unjust to do so, will order:
- the other party pays costs on the indemnity basis from the date the Relevant Period expired;
- interest on those costs of up to 10% above base rate;
- interest on the whole or part of the sum awarded up to 10% above the base rate for some or all of the period starting from the date when the Relevant Period expired;
- an additional amount of 10% of the first £500,000 of damages awarded or £10% of the first £500,000 of costs where there is no monetary award; and
- 5% of any amount above those figures subject to the limit of £75,000.
Costs on the indemnity basis mean that should there be any doubt in respect of the costs being claimed as to whether the costs were reasonably incurred or where reasonable in amount, this will be resolved in favour of the party who made the offer. There is no requirement on the indemnity basis for costs to be proportionate, which generally means that a party will receive a higher percentage of their costs than on the standard basis.
However, when a Part 36 offer is withdrawn, the consequences of CPR Part 36 will no longer apply, and therefore careful consideration must be given before deciding to withdraw a Part 36 offer.
In the recent case of Gulati and others v MGN Limited [2015] EWHC 1805 (Ch), the claimant made a Part 36 offer which she withdrew at the end of the Relevant Period. The matter proceeded to trial, and the claimant beat the withdrawn Part 36 offer.
It was the claimant’s position that even though she had withdrawn her Part 36 offer and the consequences of Part 36 no longer applied, she should still be entitled to her costs on the indemnity basis due to the defendant’s conduct throughout the litigation and the defendant’s failure to beat the withdrawn Part 36 offer although this latter argument was not pursued further. It was the defendant’s position that once the offer had been withdrawn the semi-automatic consequences of CPR Part 36 did not apply.
The claimant then argued that the Court could use its general discretion under CPR Part 44.3 and take into consideration any offer made by a party during the litigation to which the costs consequences of Part 36 do not apply and consider the defendant’s conduct.
The Court found that the defendant’s conduct was not so unreasonable as to attract indemnity costs to be ordered to the claimant. It further held that a Part 36 offer which has been withdrawn and loses the normal consequences of Part 36 also lost much of its significance and could not be elevated to the same position as a Part 36 offer which had not been withdrawn.
Conclusion
A party must thoroughly consider whether withdrawing a Part 36 offer is the correct step to take. It is clear from the above case that had the offer not been withdrawn, the usual cost consequences of Part 36 would have applied, and the claimant would have been entitled to her costs on the indemnity basis.
